Building Alliances for Corporate Social Responsibility

47 Pages Posted: 26 Jun 2019

See all articles by Han Zhang

Han Zhang

Indiana University Bloomington - Kelley School of Business

Ruth Beer

Indiana University - Kelley School of Business

Kyle Cattani

Indiana University Kelley School of Business

Date Written: June 23, 2019

Abstract

Following the Dodd-Frank Act’s mandate that public companies disclose the use of conflict minerals in their products and processes, five well-known companies established an alliance and initiated a fund to audit mineral suppliers. Since contributing to a common fund has minimal direct benefits — audits are public and companies have equal access to certified suppliers regardless of contributions — companies have an incentive to free ride. Nevertheless, the initiative was successful: the alliance was established and dozens of other companies also contributed. We propose two factors that explain this success: the initial catalyst of an alliance and the status-seeking behavior of lower-status companies that subsequently contributed. To capture companies’ incentives to free-ride, we model the funding initiative as a public goods game and incorporate the two factors: (1) an invitation stage where some of the companies can form an alliance and make an initial contribution to the public good, and (2) status-seeking behavior, by which low-status firms want to be associated to high-status firms. We use the model to show how the combination of both factors leads to high contributions. We then conduct a laboratory experiment to test the effect of the two factors and how they interact. Our experiment shows that the invitation stage is key to high contributions. In particular, the formation of an alliance significantly increases group contribution. As our model predicts, we find evidence of status-seeking behavior which influences whether and how an alliance forms. Surprisingly, we find that high-status companies not in an alliance also contribute after the invitation stage. We attribute this unexpected result to higher moral responsibility for the high-status companies. Our findings demonstrate important insights for companies that seek to address industry-wide social responsibility problems.

Keywords: behavioral operations, socially responsible supply chains, responsible sourcing, public goods games, status

Suggested Citation

Zhang, Han and Beer, Ruth and Cattani, Kyle, Building Alliances for Corporate Social Responsibility (June 23, 2019). Kelley School of Business Research Paper No. 19-32. Available at SSRN: https://ssrn.com/abstract=3408840 or http://dx.doi.org/10.2139/ssrn.3408840

Han Zhang

Indiana University Bloomington - Kelley School of Business ( email )

1309 E 10th St
Bloomington, IN 47405
United States

Ruth Beer (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Kyle Cattani

Indiana University Kelley School of Business ( email )

1309 East Tenth Street
Bloomington, IN 47405-1701
United States

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